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US economic growth below initial estimates.

Byline: Daily Star Staff

Summary: The US economy grew more slowly than initially thought in the third quarter, held back by strong imports and weak investment in nonresidential structures, hinting at a lackluster recovery.AaCorporate profits surged, however, as businesses managed to ramp up output even as they were still sharply cutting payrolls, a report from the Commerce Department showed on Tuesday.

Lucia MutikaniAa

Reuters Aa

Aa

WASHINGTON: The US economy grew more slowly than initially thought in the third quarter, held back by strong imports and weak investment in nonresidential structures, hinting at a lackluster recovery.AaCorporate profits surged, however, as businesses managed to ramp up output even as they were still sharply cutting payrolls, a report from the Commerce Department showed on Tuesday.Aa

In its second reading of the Aathird-quarter gross domestic product, the department said the economy grew at a 2.8 percent annual rate, rather than the 3.5 percent pace it estimated last month.Aa

That was a touch below market expectations for a growth pace of 2.9 percent. It was still the fastest pace since the third quarter of 2007. Gross domestic product (GDP) measures total goods and services output within US borders.Aa

"This demonstrates that the rebound was a little bit more subdued than the first print had suggested and highlights some of the headwinds to growth that could continue," said Julia Coronado, senior US economist at BNP Paribas in New York.Aa

American stock index futures pared gains following the report, while Treasury debt prices rose slightly.Aa

The return to growth after four straight quarters of decline in output probably ended the most painful US recession in 70 years. The economy contracted at a 0.7 percent rate in the April-June period.Aa

Surging imports, which outpaced the growth in exports, restrained the economic growth rate in the third quarter. Imports jumped 20.8 percent, the biggest gain since the second quarter of 1985, instead of 16.4 percent. They knocked 2.53 percentage points off real GDP, the department said.Aa

Another drag on GDP came from the construction of nonresidential structures, which dropped 15.1 percent in the last quarter rather than 9.0 percent, highlighting the problems in the commercial property market. That shaved just over half a percentage point off GDP.Aa

Businesses reduced accumulated stocks of unsold goods in the last quarter at a slightly faster rate than had been anticipated. Business inventories fell $133.4 billion rather than the $130.8 billion the government estimated in October.Aa

The decline was still a slowdown from the record $160.2 billion plunge earlier in the second quarter. The change in inventories added 0.87 percentage points to real GDP in the third quarter.Aa

The slide in inventories is potentially a positive development as it suggests businesses may be getting closer to where they will stop clearing their warehouses of unsold goods and start placing new orders.Aa

"That sets up for a better fourth-quarter GDP with more restocking," said John Canally, who is an economist at LPL Financial in Boston.Aa

Excluding inventories, GDP rose at a 1.9 percent rate instead of 2.5 percent. Final sales increased at a 0.7 percent pace in the second quarter.Aa

The GDP report also showed after tax corporate profits grew 13.4 percent in the third quarter, the largest gain since the first quarter of 2004. It was faster than market expectations for 6.2 percent.Aa

The strong profit growth was largely a reflection of deeper cost-cutting by companies, mostly headcount reduction, to deal with insipid demand.Aa

Consumer spending was not as robust as the government had estimated last month, the report showed.Aa

Consumer spending, which normally accounts for more than two-thirds of US economic activity, rose at a 2.9 percent rate instead of the 3.4 percent pace reported by the government last month.

It was still the biggest rise since the first quarter of 2007. Spending fell at a 0.9 percent rate in the second quarter.

Aa

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Publication:The Daily Star (Beirut, Lebanon)
Date:Nov 25, 2009
Words:698
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